I would suggest heading over to avforums or the like and ask there as they are much more likely to have advice for you than here. Alternatively you could have a look at items at £500 or more and then try and find them second hand.
As for what equipment I'd suggest:
AVR with HDMI in/out, this means you only need 1 cable per device.
Setup microphone - trying to balance volumes so you get the rear and front speakers sounding right can be a nuisance so an AVR which has a setup mic saves a few headaches.
Bookshelf/floorstander front speakers, getting something of good quality means you'll have an excellent pair of stereo speakers too, these 5.1 kits are ok for movies but pale when you play music through them, spending a little extra on a couple of pairs of bookshelves gets you much better quality.
If you go for big speakers (like mine) you don't
need a sub, you could do what I'm doing and kit out and use your speakers for bass now, and in the future when you have some more cash buy yourself a sub, so you have bass now and more impressive bass in the future.
If you can test some equipment out too it'll really help you decide what you want